Sequestration Is Boosting Economic Outlook

Predictions of the disastrous consequences of sequestration have been reduced to anecdotes of problems in isolated programs. While the mainstream media has been searching for the losers in sequestration, the job market and the economy in general have been quietly improving.

Although we only have experienced four months of minimal restraint in federal spending, several economic indicators have improved during that time.

Sequestration cut $85 billion in the federal budget this fiscal year. Despite the relatively small decrease in projected spending, the Congressional Budget Office expects the government to record a $420 billion reduction in the operating deficit this year.

Recent estimates show an expected deficit for the full year of $670 billion, although White House officials believe it could be as much as $759 billion. Either figure is an improvement from the fiscal year 2012 deficit of $1.09 trillion.

Because there is only so much money available in the economy, lower federal deficits allow for more private sector investment. That investment generates higher tax revenue for the government, which leads to a lower deficit.

The employment situation has also improved under sequestration.

Since the sequestration began, the private sector has added an average of 149,000 jobs per month. This is about three times more than the average of 49,000 jobs a month added between the time when President Obama was inaugurated and the sequestration began.

There could be a number of explanations as to why the economy is growing faster now than it was before government spending cuts took hold. But government deficits crowd out private sector investment and any reduction in that deficit is beneficial for the private sector.

Continued restraint in government spending could allow the private sector to grow, at least until Obamacare mandates direct private spending away from investment and into health insurance.